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20 Jan 2014 07:04am

Low tax systems win foreign investment race

Favourable tax systems are winning the global race for foreign investment, a study has found

Lower tax jurisdictions such as Singapore, Ireland and Belgium have outperformed the rest of the world in attracting foreign direct investment (FDI) in the five years since the global credit crunch, according to a new study by accountancy network UHY.

On average, countries have attracted FDI worth 17% of their GDP in the five years since the credit crunch. Belgium, however, pulled in equivalent to 91% of its GDP (a total of $442bn), while Singapore attracted the equivalent of 74% of its GDP ($203bn in total) and Ireland 44% (a total of $93bn).

Yahoo, Google, Apple, PayPal and LinkedIn all have European headquarters in Ireland, and Asian headquarters in Singapore.

Ladislav Hornan, chairman of UHY, comments, “Small economies such as Singapore and Ireland can punch well above their weight by offering significant tax incentives to companies choosing to locate there.”

“But those tax incentives only work because they also have a well-educated workforce, strong infrastructure and the sophisticated ecosystem of suppliers that a multinational needs when they decide to locate to a country.”

“Although labour, real estate and energy costs tend to be far lower in emerging markets than in developed economies these figures show that developed economies that offer the right incentives, are able to attract in even higher levels of FDI.”

The study looked at net FDI inflow over the last five years in 33 major economies around the world, measuring how successful they have been in attracting FDI compared to their GDP.

The UK came in at 14 on the list of 33 countries with $329bn of FDI, which equates to 13.5% of GDP.

The two bottom performing countries in the study were Italy and Japan: Italy attracted the equivalent of 3.1% of its GDP over the five year period, and Japan just 0.6%. Both can be difficult environments for foreign investors to acquire assets in, says UHY.

Over the last five years, the USA and China pulled in the largest amount of FDI in absolute terms, though FDI represent a smaller share of their overall economies.

Raymond Doherty

 

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